The decline in capital-skill complementarity

Gonzalo Castex, Sang-Wook Cho () and Evgenia Dechter

Journal of Economic Dynamics and Control, 2022, vol. 138, issue C

Abstract: We revisit the capital-skill complementarity hypothesis and examine whether and under what conditions this mechanism can explain the developments in wage inequality and labor share in the 1963–2016 period. Krusell, Ohanian, Ríos-Rull and Violante (2000) show that a model with capital-skill complementarity mechanism matches the data well and can account for changes in wage inequality in the 1963–1992 period. We show that applying the model to the 1963–2016 period delivers a good fit for the skill premium; however, it does not match the declining pattern in labor share in the last two decades. We modify the model to allow for a flexible technology structure and show that the degree of capital-skill complementarity is declining over time. The augmented model with time-varying capital-skill complementarity suggests explanations for the declining labor share.

Keywords: Capital-skill complementarity; Technological change; Skill premium; Labor share (search for similar items in EconPapers)
JEL-codes: E13 E25 J23 J31 O33 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Working Paper: The Decline in Capital-Skill Complementarity (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:dyncon:v:138:y:2022:i:c:s0165188922000689

DOI: 10.1016/j.jedc.2022.104363

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